Overturning years of fiscal orthodoxy, Germany has become the first big European country to announce a post-coronavirus stimulus, setting out a bold package of extraspending, tax cuts and help for business, worth 130bn. The centrepiece is asurprise three percentage-point reduction in value added tax designed to soften theblow of what is expected to be the worst recession in Germany's postwar history. Olaf Scholz, finance minister, said the aim was to bring Germany out of the crisis"with a ka-boom". The move marks a sea change in German fiscal policy. [...]. Clemens Fuest, head of the Ifo economic think-tank, welcomed the package, saying it "combines incentives to revive consumption in the short-term, with impulses for public and private investments as well as support for small and medium-sizedenterprises".But he warned that the effect of the VAT reduction might be shortlived."When the tax cut expires at the end of 2020, spending will decline significantly," he said. "And we can't expect the crisis to be over by then." The package disappointedthe German auto industry, which had hoped it would include cash incentives for buyers of conventional cars. In the end, the government increased subsidies for electric vehicles premiums will be raised from 3,000 to 6,000 for a car that costs up to 40,000 but not for those fitted with diesel and petrol engines. The package was a result of 21 hours of often tough negotiations between the threemembers of Germany's grand coalition government Angela Merkel's ChristianDemocratic Union, its Bavarian sister party the CSU, and the left-of-centre Social Democrats.[...], the partners agreed to the VAT reductionan idea that had been championed by CDU leader Annegret Kramp-Karrenbauer and Helge Braun, MsMerkel's chief of staff. From July 1 until the end of 2020, the standard rate of VATwill be reduced from 19 to 16 per cent, and the lower band cut from 7 to 5 per cent a measure that will cost 20bn. Mr Sder called it the "biggest tax cut of the last few decades". [...]German businesses welcomed a measure to cap social security contributions at 40 per cent of wages for the coming years, and the creation of a25bn fund for the months of June to August to help companies hard hit by thepandemic, particularly those in the hotel and hospitality sector. Companies will be able to set more of their 2020 losses against taxable income for 2018 and 2019. Families will receive a one-off bonus of 300 per child a measure that will cost4.3bn. In addition, the coalition partners signed off on a 50bn "future package" ofinvestment, with a focus on the transition to a greener economy, and research in areas such as artificial intelligence and quantum computing. Huge sums will be spenton expanding Germany's charging infrastructure for electric cars. Speaking on ARDTV on Thursday evening, Ms Merkel said the pandemic had come at a time when"digitisation and climate change are changing our economy". That's why, she said, he stimulus package must not only boost the economy and help it recover from thecrisis, but also "chart our course for the future".

A) Briefly discuss the specific characteristics and evaluate the potential positive and negative effects of the fiscal policies adopted by the German Government to tackle the recession induced by the Coronavirus pandemic in 2020.

B) Explain and illustrate the theoretical impact of these fiscal policies using the Keynesian Cross diagram. Explain the multiplier effect and show it in your diagram.

C) Explain how the accelerator effect and time lag arguments apply to the German fiscal policy measures.

D) A major pandemic forces the government to lockdown the population and reduce production in large sections of the economy for several months. Explain how this might impact the economy. Show (draw) the impact of this scenario using the Classical 4x4 diagrams and the Classical aggregate supply and demand diagram. Explain the changes (shifting elements) as well as causes and effects in the diagrams.